Person working at a desk with a laptop and notes. Text overlay reads, "Small Business Tax Credits: How to Take Advantage of Available Incentives.

When you started your business, you probably weren't thinking about full-time employees, tax bills and tax brackets, business expenses, or working with CPA tax professionals during tax season. Tax credits weren't on your mind, either, which is understandable. But now that you're up and running, it's important to learn which credits your business is eligible for. 

Use this article as your introduction to tax credits for your small business, including what they are, eligibility requirements, and how to claim them. 

What Are Small Business Tax Credits?

Tax credits allow you to minimize your annual tax burden. They are applied to the taxes your small business owes when your return is filed and cannot be used to reduce your taxable income. Some tax credits your business might be eligible for are common, while others are more obscure but still useful.  

Small Business Tax Credits You Could Be Eligible For

Here are some of the most common tax credits your small business may be eligible for. 

  • Work Opportunity Tax Credit (Form 5884). You can file Form 5884 to claim the work opportunity credit for qualified first- and/or second-year wages you paid to or incurred for targeted group employees.
  • Health Insurance Premiums (Form 8941). Use Form 8941 to determine the credit for health insurance premiums for tax years beginning after 2009. For tax years beginning after 2013, the credit is only available for two consecutive years.
  • Research and Development Tax Credit (Form 6765). Use this form to calculate and claim the credit for increasing research activities, elect the reduced credit under section 280C, and elect and calculate the payroll tax credit.
  • Family and Medical Leave (Form 8994). Use this form to determine the credit for paid family and medical leave.
  • Natural Disaster Tax Relief (Form 4684). Attach this form to your tax return to report gains and losses from casualties and thefts.
  • Retirement Plans Startup Costs (Form 8881). Use Form 8881 to claim the credit for qualified startup costs incurred in establishing or administering an eligible employer plan.
  • New Markets Credits (Form 8874). Use this form to claim the new markets credit for qualified equity investments made in qualified community development entities. This credit is part of the general business credit.
  • Employee Retention Tax Credits (Form 941-X). Use this form to correct errors on a previously filed Form 941.
  • Disabled Access Credit (Form 8826). You can claim the disabled access credit, which is also part of the general business credit, using Form 8826.
  • Childcare Credit (Form 8882). Use this form to claim the credit for qualified childcare facility and resource and referral expenditures.

    • The electric vehicle credit, alternative motor vehicle credit, employment credit, and empowerment zone credit are popular among small business owners.

    This is not a full list of tax credits or a complete listing of the credits your small business is eligible for. It can be difficult to identify every tax credit your small business is eligible for without experts on your side. Tax advisory from 1-800Accountant can help your business zero in on all eligible tax credits today while searching for new credits as your operations scale up. 

    Difference Between Tax Credits vs. Tax Deductions

    Tax credits and tax deductions are sometimes used interchangeably, perhaps because both will help to minimize your income tax liability. But they aren't the same and are applied in different ways. A tax credit for your small business reduces the money you owe, while a tax deduction is applied to your taxable income.  

    You may take advantage of all the credits and deductions your small business is eligible for. 

    Eligibility For Small Business Tax Credits

    There are eligibility thresholds that your business must meet in order to qualify for certain tax credits. Common criteria include:

  • Taxable business income
  • Number of employees 
  • Location

    • The tax credits your business qualifies for can change from year to year, depending on where you fall within a specific threshold.

    Claiming Small Business Tax Credits

    You must file Form 3800 to claim any general business credits you're eligible for. An area on Form 3800 allows you to add together each individual business tax credit you've identified to show the total amount of tax credits you will be taking. It also allows you to ensure that you haven't exceeded any limitations on the credits you can take.

    If you take an excessive or outsized amount of tax credits, the IRS may audit your business. 

    Let 1-800Accountant Handle Your Small Business Tax Credits

    If you aren't taking advantage of every eligible tax credit, you are leaving money on the table. It can be challenging to know how to identify each tax credit and take the necessary steps to claim them. That's why so many small business owners and entrepreneurs use 1-800Accountant, America’s leading virtual accounting firm for small businesses, as their trusted financial partner.

    Whether it's bookkeeping, tax advisory, quarterly estimated taxes, or any of our professional accounting services, we have the affordable solutions you need to ensure your business always takes every tax credit it is entitled to. Schedule a quick consultation – usually 30 minutes or less – to learn more.

    This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.